Carbon trading scheme
From Envirowiki
It is important for an emissions trading schemes to be well designed. If it is not, then not only will it not address climate change, it could impede the action that is required, and can have negative environmental and social fallout. There is also a risk of rent seeking, instead of polluters trying to reduce their emissions, they could instead try to influence public policy so that the burden of a carbon price is shifted elsewhere (such as onto consumers).
The European Emissions Trading Scheme is a good example of how carbon trading schemes fail. Grandfathering of heavily emitting industries meant that the worst polluting industries maintained, or even increased their emissions, without penalty, or even managed to make money by selling their excess.
The basic problem with ETSs, is that permits are dealt out on a per-company basis, but companies are not quantifiable entities. Different industries emit different amounts, and operate at different efficiencies, and are of differing importance (a junk food factory is inherently less important than a fresh produce market), and different companies within those industries are different sizes, and also operate at different efficiencies. Any attempt to quantitatively compare such companies will be arbitrary and extremely subjective.
The only ETS that could overcome this is an equitable tradeable emissions rationing: each person is assigned a maximum carbon ration (based on a contraction and convergence world model), of which a safe portion is tradeable, and can be sold to other people who need it. This is mostly equitable, because the richest, who tend to be the highest emitters, have to purchase emissions rations from the poorest, allowing the poorest increase their standard of living, while lowering the total emissions.
[edit] 1 Issues related to the design of a cap and trade system for greenhouse gas emissions
The central issue in an emissions trading scheme is the level of the cap. This determines the level of emissions and influences the carbon price. The coverage of a cap and trade system is also important. Sources of emissions that may or may not be covered include:
- electricity generation;
- other forms of stationary energy;
- transport;
- waste (predominantly methane gas from landfill);
- industrial processes such as the production of steel;
- land use, land use change and forestry;
- agriculture.
[edit] 2 Permit Allocation
Permit allocation is also a significant issue. Are permits auctioned, handed out for free to polluters (grandfathering), or a mixture of both?
According to a strict free-market doctrine, 100% auctioning would be the best situation, as this would benefit the most efficient industries most, and would require the least government intervention. Grandfathering is basically an attempt to bail out the more polluting industries, rationale given is usually "being fair", or "saving jobs". Unusually, this is one instance where environmental concerns side with free-market ideals, although this is only the case where efficiency can be increased, and it may backfire due to Jevons' paradox.
[edit] 3 Forests and Carbon trading
Forests are a large carbon sink, and as such, they are often discussed along side climate change mitigation strategies. One example is the UNFCCC's reducing emissions from deforestation and forest degradation (REDD)[1], which is basically an offsetting strategy, and fails to completely remove the offset carbon from the biocycle.
REDD has also been criticised by indigenous rights groups as risking removing indigenous peoples from their lands.
